March 30, 2026
Empire State Report
New York State Must Intervene In The Behavioral Health Crisis
By Lauri Cole | March 30, 2026
New York State is in the middle of a behavioral health crisis. Suicide rates are up over 40% in the last 20 years. Overdose rates are almost four times higher than they were in 2010. During this crisis, Medicaid Managed Care Organizations (MCOs) paid by the State are taking hundreds of millions of dollars out of the system while delaying payments to providers, delaying care for people, exacerbating waiting lists, and undermining the stability of this healthcare delivery system. This must change now.
The New York State Council for Community Behavioral Healthcare (The Council) has been leading an advocacy campaign with over 20 organizations representing New Yorkers in need of behavioral healthcare, their families, providers and several legislators to carve outpatient, rehabilitation, and residential behavioral healthcare out of Medicaid managed care.
Ten years ago, New York State’s Medicaid Redesign Team (MRT) moved behavioral healthcare into managed care under the state’s “care management for all” initiative with the promise MCOs would coordinate care, control costs, and ensure members’ care is integrated across the providers serving them. A decade later, New York has shown that MCOs don’t coordinate care, don’t control costs, don’t ensure their members get integrated care, and don’t pay claims accurately or on time. This has led to a major access to care crisis which New York must address now.
Promised improvements haven’t materialized, but significant payment delays, ballooning administrative demands, and exacerbations of an already exploding workforce crisis have. The money lost to managed care has led to a contraction in services while the pandemic and its sequelae have led to skyrocketing demand for both mental health and addiction services. Waiting lists are growing and accessing care is harder for families.
Numerous plans have failed to meet expenditure targets set by the State requiring them to spend 96% of premiums on actual care in Medicaid. The State’s failure to collect these overpayments was the subject of assertive advocacy by The NYS Council that resulted in over $500 million (federal and state share) returned to behavioral health services. Yet MCO evasion continues.
By any objective measure, MCOs have failed to deliver on the promises that led the MRT to move behavioral healthcare into managed care. A carve out would enable the state to reinvest $400 million annually, currently paid to plans for profit and administration, to help fill gaps in care and help recruit and retain the workforce needed to meet demand for services. This is also critical to address anticipated increases in the number of New Yorkers who will be uninsured due to H.R. 1., the One Big Beautiful Bill Act.
Last week, a former Deputy Health Secretary Paul Francis and the Step Two Policy Project brought their intellect and experience to bear on the question of whether behavioral health services should be carved back out of managed care. This issue brief follows past analyses by Step Two about whether managed long term care should remain in managed care and if school-based health services should be carved in.
Step Two pointed out the failures of MCOs with behavioral health (don’t take my word for it, take theirs).
- MCOs didn’t meet spending requirements: plans have been hoarding taxpayer dollars and had to return hundreds of millions of dollars to the state (after they held the money and kept the investment returns).
- MCOs deny claims at an astronomical rate: Step Two found “persistent non-compliance” with denials in excess of the 20% threshold set by the Office of Mental Health (OMH) and external appeals overturned 52% of the time for mental health and 64% of the time for substance use disorder services.
- MCOs fail to pay state mandated rates: Plans fail to pass through mandated increases for cost-of-living adjustments to providers despite receiving the dollars in their monthly premiums.
- MCOs do not comply with mental health parity laws: Plans have been out of compliance with both federal (Mental Health Parity and Addiction Equity Act) and state (Mental Health and Substance Use Disorder Parity Reporting Act) laws, further restricting access to care.
- Network adequacy is an illusion: MCOs have been caught red handed with “ghost networks.” The Attorney General’s secret shopper investigation found that only 18% of plans network providers were offering an appointment. An October 2023 report commissioned by the State, conducted by Boston Consulting Group (BCG), found that more than two out of five behavioral health providers listed in plan directories do not bill for Medicaid services.
- The state does not hold MCOs accountable: Despite hundreds of citations (over 320 since 2019) and hundreds of millions of dollars returned to the state, the Department of Health has repeatedly and chronically failed to hold MCOs accountable in any meaningful way. They lack the means and appetite to hold plans accountable for performance that is clearly unacceptable.
Like a physician that has made a correct diagnosis but prescribed the wrong treatment, Step Two saw the problem clearly but does not propose the obvious solution: Acknowledge that the managed care experiment has failed and continues to fail New Yorkers. They urge New York to commission another report on the viability of this model while wishfully thinking that DOH will increase enforcement of MCOs. We have been there and we know it won’t work. As cited in the Step Two paper, BCG already conducted this study for the State, three years ago. Another report will tell us what we already know that the experiment with carving behavioral healthcare services into managed care didn’t work and New Yorkers are suffering and dying as a result.
We don’t need another report. We need change and we need it urgently. Studying the problem and imagining that DOH will hold plans accountable is akin to asking New Yorkers to believe that this time Charlie Brown will kick that football. We know better.
The only way to help New Yorkers who are desperate for behavioral healthcare and the providers trying to care for them is to carve behavioral health services out of managed care. We can’t afford to wait.